New strategies post APRA

Hi Terry,

I've been looking further at this point. However all advice including the ato website states:

Tax on contributions

The super contributions you make before tax (concessional) are taxed at 15%.

Types of before-tax contributions include:

• employer contributions, such as compulsory employer contributions and salary sacrifice payments made to your super fund
• contributions that you are allowed as an income tax deduction
• notional taxed contributions if you are a member of a defined benefit fund.
• unfunded defined benefit contributions
• constitutionally protected funds

So from my limited understanding, tax is paid, just not as HIGH as usual.

In addition, you're capped at $25k

Contribution caps

From 1 July 2017, the general concessional contributions cap is $25,000 for all individuals regardless of age.

So on a $100k income, you can only put in an additional $15k over what your work pays. That $15k is taxed at 15%. So you're adding an additional $12,750/yr.

As for non-taxed contributions, it is not taxed because you've already paid tax on it as per normal. This is simply avoiding double tax.

That's how I've understood it. Please correct me if I'm wrong. Thanks.

 

This would be prohibited unless the property is classed as 'business real property'

 

Yes this is correct. You don't pay the tax though, the super fund pays it

 

Using the money I paid into their account though... so... I paid it? They just did the transfer on my behalf.

 

Your personal tax is reduced because your income has reduced. The superfund pays the tax, but it comes out of your super benefits.

 

Ok perfect.
I just wanted to be super clear.

So say I was on a 37% tax rate. By contributing, I don't pay tax here, but under super I pay 15% tax.

So if I can beat 22% (37% - 15%) return on my funds, I'm better off investing elsewhere.
Alternatively if running a business I need to beat 13.5% (28.5% - 15%).

That's 13.5% on capital post tax.
A leveraged investment should blitz that.

Cheers.

 

The very reason that Super exist

 

Random thought.
With so much cash going into super funds, wouldn't that make it a target for ponzi schemes etc?

It's a serious amount of money to invest. How many quality companies are out there that can handle that much cash?

It sounds like the whole buyers agent with 1 customer vs 1000s. How much quality stock is there to invest in? Are they just overpaying and creating their own bubble?

 

It's not $25,000 after tax income though. It's only a pre-tax top up. For example, if the employer is already contributing the person can only salary sacrifice $13,000 per year. This is $500 per pay for people being paid fortnightly and it doesn't take $500 out of their hip pocket. Their take home pay is affected by less than $500 because of paying less tax.

I understand that a lot of people would not be able to contribute $500 per pay but what about half that, or even $100? $100 per pay over 40 years is going to compound nicely in top of compulsory contributions

 

Running some calcs now.

If I salary sacrifice $100 per pay it reduces my take home salary by around $30 per week.

Over 40 years that's an extra $104,000 in super which would be multiples of that with compounding.

I would be surprised if no one could find $30 per week savings.

 

I crunched the numbers in an earlier post.
I think you'll find most people wouldn't be able to do that.
At least not until they are in their 40's.

First decade of work, start on a lower income, paying HECS, saving for home deposit, wedding, kids.
Second decade of work, paying down PPOR.

Maybe in that time you put away an extra $20k. Perfect.
Maybe then you put some aside in the last 27 yrs of work from 40-67... assuming you don't upgrade your car or PPOR.

Any contributions at this point are also detracting from your ability to do investments such as property.

Different if you're on a high income, which was my original point about needing to up your income. I think a lot of people here are over-estimating the power of $100k income and only contributing to super.

I'm 32 now and looking at getting married, where will I get the money from to pay for such an event, even a small one? From my off-set account! What if I'd put every dollar I had into super, hmm civil ceremony, and 1 night at the Hilton? What about deposit for PPOR? 25% of $500k is $125k. Will take 6 years to put together... as long as the wind doesn't blow the wrong way.

I'm strongly suspicious our mate giving advice on how anyone can put money aside in their super and retire in comfort, is actually on a high household income. Maybe $200k+
#fake-math

Theory, and reality are 2 very different things.

 

I don't agree. See my post above regarding $30 per week. Salary sacrificing $100 per pay only reduces take home pay by $30 per week. That is doable for a lot of people. I spend $15 a week on coffee and $25 per week on public transport when I can cycle to work. Thats $40 I could easily save. How about taking lunch from home instead of buying it and drinking a pint of beer less per week? People can save more than they think.

I agree. It's not theory for me though because I salary sacrifice into super and also invest in residential property.

 

I respect that.

Though our friend is talking about an extra ~$600,000 in 40 yrs, not $104,000. And a paid off PPOR.

Mind me asking, for the sake of transparency.
Are you married, kids, what's your age, and household income?

I'm not disagreeing with you that these things aren't possible.
Not everyone has the ability to see the bigger picture.
I know too many young starters getting stuck at IP3 and wondering where they went wrong.

Also, how'd you get that figure?:
If I salary sacrifice $100 per pay it reduces my take home salary by around $30 per week.

 

What's the value of super? If everyone in the country gets $1000 doesn't that just make the price of life go up $1000?

It doesn't really matter how much you have, just make sure you're doing better than average people your age. Being around financially competitive friends will push you but don't lose perspective on what the greater whole are doing. This website is a good way to freak you out, people on here are probably in the top 1% of people who care about their wealth.

 

It's not $104,000. It's $100 per fornight compounded over 40 years. My super returns 7% to 10% per year. So lets be conservative and say 5% compounded annually.

Initial deposit $0
Regular deposit $100 per fornight
Compound annually over 40 years
Interest rate 5%
Regular deposits $104,000
Interest $210,000
Total savings $314,000

All for $30 per week. That's the magic of compounding that most people don't get.

And I'm not saying that $100 per pay will solve everything. $100 is the starting point which can be increased once the person starts earning more. Most people spend what they earn so when they start earning more they simply adjust their lifestyles to match.

The great thing about salary sacrificing is that you don't have to be disciplined to save because in a way you never see the money.

A bloke at work asked me how it all worked because he had a pay rise coming up. Once I showed him the numbers he decided to salary sacrifice half his pay rise. He has low income earner wife and 2 kids. Salary sacrificing half a pay rise isn't a huge sacrifice considering take home pay is affected by a lot less than the amount saved into super.

I don't have kids but understand kids are expensive. My argument is that I would be surprised if many families could not find $30 per week savings. Out of interest, I live in a shared house. For a household of 2 adults our annual expenditure last year was less than $24,000. I know this because we did a JV project together and had to provide expenditure data to the bank for the loan.

My point is not about how much I earn it's about how I spend it. For example, my phone plan is $15 per month with all the data, calls and texts that I need.

How much could a family save if they did all of this, find suitable but cheaper
- phone plans
- internet plan
- car insurance
- home insurance
- energy provider

People are paying far more for these services than they should be but can't be bothered finding better deals or simply don't know they can save a lot by switching.

I completely agree. No offense to you but you don't seem to have a clue about super, salary sacrificing or how compounding works. You are an active investor and don't know these things so how is average mum and dad, struggling to make end meet, going to know that they could completely change their retirement for a relatively small amount per week. This is why most Australians retire with completely inadequate super where I don't believe they need to.

It is gross salary minus tax = take home pay
Then gross salary minus $100 minus tax = ss pay.

take home pay - ss pay is around $60, so $30 per week.

I will use a person earning around $91,000 as an example because it's easier to calculate than mine:

No SS:
Taxable income $3,500
SS $0
Tax $886
Net pay $2,614

$100 SS
Taxable income $3,400
SS $100
Tax $850
Net pay $2,550

$2,614 - $2,550 = $64 per pay or $32 per week.

They end up with $100 extra in their super but it only "costs" them $64. Personally, I think that is great value!

 

@NHG, I forgot to add that I helped my mate move from a $150 per month mobile plan to a $15 per month mobile plan. That previous bill was eye watering but it was a capped plan and he kept blowing the cap! The new plan is unlimited everything except data but he doesn't use much data so doesn't go over the cap. I know $30 per week is not life changing but it's interesting that my example above shows that salary sacrificing $100 per pay costs around $30 per week and this bloke saved $30 per week simply by switching to a cheaper phone plan.

 

Have a look at my post here Rolf:
Barefoot Investor Scott Pape’s New Kids’ Money Guide Book Sets Record for Pre-orders

Summarises your point about education.